Employees going part-time? They should consider their pension
There are many reasons why people may go part-time, including childcare, caring responsibilities, and personal health, or even prioritising a manageable work-life balance.
Switching to part-time work has an obvious and immediate impact on earnings, but perhaps lesser known is the impact it could have on pensions.
Part-time workers could see a smaller pension pot
New analysis from Standard Life reveals that someone that began working full-time with a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from age 22, could amass a total retirement fund of £210,000 by the age of 68* in real terms, accounting for 2% inflation.
However, if they started working part-time for three days a week from the age of 35, they could build up a pot of £152,000 by the age of 68 (again accounting for inflation and assuming from the age 35 that the salary is changed on a pro rata basis for the number of days worked each week.) – a whole £58,000 less than if they remained working full-time.
That’s because saving at the same level, but with a lower salary to contribute from, results in a smaller amount going into their pension pot.
Raising personal contributions could make up shortfall
If the same person was able to increase their contributions to 13% when working part time (10% employee, 3% employer), they could build a pot of £206,000 in today’s prices – almost the same level as a full-time worker paying minimum contributions.
While it won’t always be possible for all part-time workers, increasing pension contributions when going part-time can go a long way to making up the shortfall in pension savings.
If you have employees who plan to go part-time, it’s a good idea to raise awareness of the impact this can have on their future finances.
Help employees understand how much they’ll need in retirement
It’s a good idea to help employees understand how much they might need to fund their ideal retirement lifestyle.
You can help by signposting employees to the PLSA’s Retirement Living Standards.
This outlines how much they’d need each year to fund a minimum, moderate, and comfortable lifestyle in retirement.
It can help them determine whether they’re on track, and make any adjustments to their finances if not.
If you’re with Standard Life for your workplace pension scheme, your employees can also use our Retirement Income Tool to get an idea of how their financial future is shaping up.
It incorporates data from the Retirement Living Standards, so they can easily track their retirement goals against their current and expected pension savings.
Boost awareness with tailored communications
Some of your part-time employees may be completely in the dark about the effects that working part-time can have on their pensions.
Consider creating a communications campaign, targeted directly to your part-time employees, that boosts awareness of the facts and helps them make informed decisions about their finances.
You could include signposting to resources such as the Retirement Living Standards and MoneyHelper websites, as well as the Retirement Income Tool for Standard Life scheme members.
Support employees with their day-to-day finances
Helping employees to budget for their everyday money can help them build up their financial resilience for the future too.
Indeed, if employees have a better understanding of their short-term spending and saving, it can help them feel more confident making decisions for their long-term finances.
You could point employees towards resources such as MoneyHelper, which provides information and tools that can help them get to grips with their day-to-day finances.
Standard Life workplace pension scheme members can also use Money Mindset to help them get organised and set budgets.
Using open finance technology, Money Mindset allows employees to see their financial accounts in one place, giving them clearer view of where their money’s going.
Plus, they’ll get access to a library of bitesize financial education content that can help them get to know their money better.
For more insights on financial wellbeing, including resources on how you can help support your employees, visit our Financial Wellbeing hub.
This illustration assumes a worker beginning with a salary of £25,000 per year and contributing 8% (5% employee, 3% employer) monthly contributions into a workplace pension from the age of 22 and assuming 3.5% salary growth per year, and 5% investment growth. Figures reduced to take effect of inflation, assumed to be 2%. Annual management charge of 0.75% assumed. The figures are an illustration and are not guaranteed.
In partnership with Standard Life
Standard Life are part of Phoenix Group, the UK’s largest long-term savings and retirement business. We both share an aligned ambition to help every customer enjoy a life full of possibilities.
